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Holdouts on Chrysler Deal Say They Were 'Systematically Precluded' From Negotiations

A group of about 20 firms who declined to go along with the 11-th hour deal struck by the Obama administration to save Chrsyler from bankruptcy, has just released a statement claiming that the deal was unfair.

The group, which does not identify who they are but sources said includes boutique firm Perella Weinberg, hedge fund Stairway Capital and asset manager OppenheimerFund, said they had been “systematically precluded” from engaging in direct negotiations with the government, which they said had been largely done by four large banks that own 70 percent of the $6.9 billion in loans. Goldman Sachs, Citigroup, JPMorgan and Morgan Stanley have all agreed to the government’s offer of $2.25 billion, or 33 cents on the dollar, for the loans.

“We have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds,” the lenders who rejected the government offer said.

The holdout lenders -- who said their combined debt holding represents about $1 billion of the $6.9 billion owed to senior secured lenders – struck back at comments from an unnamed administration official this morning that blamed them for causing the imminent bankruptcy. The group said they had offered to accept 60 cents on the dollar, despite “long recognized legal and business principles” that gives senior lenders such as themselves the right to be repaid in full before others recover anything in bankruptcy court.

“Our offer has been flatly rejected or ignored,” the group said. “In its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.”

Good for them. The fact that the only banks who agreed to it are the TARP banks (which are basically government-owned at this point) and that this is basically just a vehicle (pun intended) to rescue the Obama-supporting UAW from the results of its own excess make me do the unthinkable --- root for the hedge funds! =P

I assume that the above mentioned firms had no problem with capitalism as long as they were making a profit. Apparently they do have a problem with the fact that profit is made in exchange for risk, and sometimes that risk results in a loss or write down.

If these firms are seeking sympathy, good luck. They enjoy lower tax rates than most of us and have spent the last several years paying (in some cases) hundreds of millions to their principals in salary, er, sorry, I mean capital gains.

As for their offer to settle for 60 cents on the dollar, 30 cents on the dollar is to my understanding generous compared to the payout in a typical bankruptcy. Now they'll likely get MUCH less.

Although I support the Obama administration's valiant attempts to "do right" with the imponderable task(s) that carried over from the previous administration, nonetheless some of the conclusions being rushed into place at this time DO "smack" of Socialism and unfair treatment under Capitalism.

Is it possible that the hedge funds have insured their Chrysler bonds with AIG? And that insurance would pay only in case of insolvency, but not for a "volutary" swap for equity? So in bankrupcy, they'll get hundred cents on the dollar from the taxpayer AIG bailout - much better than the 33 cents they're offered now?

Let's not forget the UAW was offered "employee ownership" in the restructed Chrysler company. Something like United Airlines, I suppose.

But the deal is not completely dead, without the consent of the smaller bond holders, is it? Maybe those smaller financial players are trying to elbow into the deal, if as they say, they were not at the bargaining table.

I haven't agreed with much of what Obama has done, but I sure agree with this decision! These corporate traitors care about money and nothing at all for this country. I hope to God they go bankrupt. At the very least, they need to be blacklisted and made as miserable as possible. Can we have the IRS do endless audits of everyone investing them, preclude them and anyone invested in them from getting any federal contracts or bailouts, and otherwise make their lives the living hell they have made for the workers at Chrysler. Treason should have consequences!

If they think the offer is unfair, they can take the market value. They took risk, now they can live with the result. Tough luck, but a lot of us have lost money in the last year. Why anyone, anytime in the last 10 years would invest in Chrysler is beyond me. What were they thinking?

Wow, "traitors," "blacklisted," "treason?" You are obviously speaking from an emotionally ignorant position. Chrysler was a poorly run company that needs to go into Chapter 11. If anybody is to blame in this mess, it is Chrysler's management group. Poorly run companies go out of business every day. Why should the Government subsidize the continued failure of the company? And please do not give me the tired Iaccoca argument. That continues to be applied out of context.

These Hedge Funds and investors are defending the rule of law, their shareholders, and the foundation of American capitalism.

This administration is taking its marching orders from Goldman and the UAW.

Now, WaPo readers, which side do you want President Obama to be on?

(I'll give you a hint: it'll be a lot cheaper for you in the short and the long run if those who scrambled this "deal" win. A govt-UAW owned car industry will suck you drier than Dracula. Stop being suckers.)

I was really proud of Barack Obama. We have lived in this world were the rich hedge fund types have expected ordinary working people to make all the sacrifices. Let the workers make all kinds of concessions. Then the government bailout will make the hedge fund owners and others like them whole.

Well, the rules have changed. Now the working people matter. We have a president who is willing to stand up to the rich CEOs with their huge bonuses, the ponzi schemers and the Wall Street types who for eight years have manipulated the system to get richer and richer while regular people starved.

BT23 - S Chrysler was a poorly run company. Now it will have a chance at being a well run company. That misses the point. These vermin, oh, these investors, invested in that poorly run company. They attempted to hijack it for their badly placed bet... investments ... AND THEY LOST! Chrysler is now bankrupt. These vermin now get to get in line, at the very rear of that line, mind you, and hope they get anything at all. That is the "free enterprise system" the jerks that run these companies and invest in them blather on and on about, isn't it? I hope and pray it costs them a lot, enough to make it very painful. I'm sick and tired of these wealthy scum driving the outsourcing of jobs, practicing all manner of fraud, mistreating the American people. Not to put too fine a point on it, but their actions constitute treason and before this depression is over, people will be calling for these pieces of subhuman trash to be imprisoned or shot.

Good for the funds. Yes, investors are taking risk for a hopefully profitable return. But secured lenders receive much less in interest in exchange for providing recourse financing.

They have no motivation to go along with the administration offer, when they can force the company into liquidation if need be, and get paid first when whatever's left of Chrysler's assets are sold off at fire sale prices.

And for those of you haters of capitalism on this board, you might want to check your 401(k) statement, because you might actually have some Oppenheimer Funds in there.

I hope those greedy hedge fund ba-tards who scuttled this deal end up with nothing! They refused to negotiate fairly like the rest of the stakeholders, including the workers and unions. They wanted the whole pie, even if it meant killing the golden goose.

They are unpatriotic and I hope they get what they now so rightfully deserve -- nothing! Including now, hopefully a loss of their own customers. Oppenheimer Funds, you're toast. No more 401(k) investment money from me.

These crooks want 60 cents per dollar on debts which are currently trading at 15 cents on the open market. Guess who they think is going to pick up the difference? That's right -- look in the mirror, sucker.

I sincerely hope the bankruptcy court crams these debts down to levels well below the government's pre-bankruptcy offer. These crooks should be standing in front of a firing squad right now instead of lining up for a free handout of US taxpayer money...

I guess I just don't understand why the companies that provided a large portion of Chrysler's secured debt should not receive anything? They made an investment predicated on the fact they will be first in line should the company fail. They are willing to take a 2/5ths haircut on their investment, but not a 2/3rds haircut. There seems to be a view on this board that the investor's want the company to fail. That is ridiculous. You do not invest a combined $1B in the hopes of receiving back $600M.

Hey jerkhoff, you're referring to the pricing of the unsecured bonds. The secured debt is trading much higher. Why? Because their debt is SECURED by Chrysler assets, and therefore SENIOR to the other claimants including the UAW.

What is it about the words senior and secured do you people not understand? No judge is going to cram anything down their throats when they already have a legal right to essentially foreclose on whatever assets are securing their debt.

One more thing. As reported in the WSJ, Group C Capital is one of the dirty rotten hedge funds that is a secured creditor. What this firm is struggling with is the fact that it is a fiduciary to its pension fund clients, which represent over 80,000 pension plan participants, the vast majority of whom are middle or working class folks. Behind the fund itself, those individuals are the real owners of the Chrysler debt.

While this may appear to be class warfare, helped in no means by Obama's populist rhetoric, the real issue here is which group of middle class Americans gets the better deal.

if you believe in the capitalist system and the bankruptcy laws, the u.s. government should have stayed out of this from day 1. a prepackaged bankruptcy plan with government guarantees and/or financing would have been the ideal way to affect the least amount of people; but now we will get to see how the "cram down" theory of bankruptcy works in a real world application.

An article that I read said that these investors bought their share for 60-something cents on the dollar, as "distressed" purchases. Now they seem to want to get 100 percent of their investment back. Wouldn't we all?

And, is it prudent for pension funds (safety above all, I would think) to invest in hedge funds?

The banks that they say have taken tarp money are now paying the goverment back (us) and some have already. They don't have insurance like the ones that would not work with Chrysler. They don't care if 30,000 US workers are unemployed...thousands more retired lose their retirments. What ever the bankruptcy court decides they have to give in, they will be paid threw their insurance company. A no lose situation and they want you to believe that they offered 40% haircut...when others where given up 70% and no insurance to pick them up...Shame on Perella Weinberg,Stairway Capital,and OppenheimerFund for saying no to the Chrysler families and businesses when they were they same Bush hedge fund companies that put the USA in fiancial turmoil...way to go people...Hooray for you and to heck with so many American familes that won't forget your good deed...Shame on you...

As has been consistently noted on this board, the hedge funds are not rich folks who want everyone else to take a hit: they are financial representatives of the majority of middle class citizens. people: your retirement accounts may well be invested in these funds. the hold-out funds are owners of secured, priority debt and, therefore, legally entitled to be paid in full from the sale of the companies assets, or as close to in full as the assets allow. so, think: if your 401(k) incorporated investments in these funds, would you want them to throw away YOUR money so in the manner that the administration has proposed? would you find that to be patriotic? no, you would end up suing them for breach of fiduciary duty.

if you have no idea how bankruptcy works, what secured debt means, or where your own money is invested, do us all a favor and stop writing about such issues. otherwise, do yourself a favor and become at least marginally informed.

requieminpace- Excuse me, but I don't have a "retirement". My former employer LOOTED IT, all of it, under some accounting gimmicks gifted them by Bush. You see, they set up an Indian subsidiary and transferred all of their U.S. assets, leaving the U.S. company broke and my/our retirement savings, 22 years of it, worthless.

As for the 401K. For everyone but public employees, it's giant Ponzi Scheme. After you get done with the fees and administrative costs, they steadily sink. They weren't designed for retirement income for ordinary people to begin with. They were a tax dodge for corporate executives. With public employees, though, those retirement funds are tax payer backed. Which means that any and all losses are simply made up for by tax revenues. Right now, around 35% of state tax revenues for states and local governments across the country go to simply make up for those losses, which is why basic services are being cut, teachers laid off, and state and local taxes increased. The 401K is not viable as a retirement investment vehicle and needs to be done away with.

milbrooks27: i completely empathize with your situation and annoyance. my retirement account has sunk to next to nothing, was barely extant to begin with, and i have little more faith in the monies it contains than i do in social security.

that being said, i knowingly have attributed money into this account and the risk i face is my own. i could have stock-piled canned goods and weapons, bought gold or land, or any number of other options. i happened not to do so, much, being lazy. therefore, my retirement funds are in a 401(k). am i anxious about that choice? to be sure. but it was my choice and i should live with it, even as a pauper unable ever to retire.

should the 401(k) as a vehicle cease to exist? maybe, but why not let the marketplace decide. if people do not want to invest in them, well, they don't have to do so. even when my choices are stupid, i still prefer to have them as opposed to ceding all such options to government apparatchiks with, i suspect, no better a success rate than i might have myself.

maybe i am in the minority? all those in favor of a nanny state, say aye! but please stop writing, since you are endeavoring to give up your voices to the all knowing, onmipresent state.

and, btw, i have been a life-long, registered democrat and am far-left on most social issues. just figured i should say before being branded a larouche-ite.

Senior Debtors lend money to a business at lower rates (than unsecured lenders) with the understanding that if the company (Chrysler) defaults, the senior lenders will have first claim on the business assets.

Why should the creditors not act in the interest of their shareholders? These investment funds (like Oppenheimer) have a responsibility to look out for the best interest of their investors (you & me).They should make out a lot better from the sale of the assets in bankruptcy than by participating in Obama's reckless plan, which will leave a UAW-run zombie propped up by government support payments (for how long?).

IMBILLY: Gee, I thought the Post screened hate language. Obama happens to be a centrist Democrat, to the dismay of leftist Democrats -- and the radical right, because lots of Republicans think he's doing a good job in an amazing range of tough situations.

You are a complete idiot. Based on your completely ridiculous comments about 401k's
I highly doubt that you ever really worked long enough to qualify for a pension. If you did, you would be familiar the Pension Fund Guarantee Trust.

Take responsibility for your own poor judgment. Even if you were to SILLY to put retirement money toward a 401k, it shouldn't have stopped you from putting some money into savings.

SeniorSecured (and many others): Missing from your exquisite legal and financial logic is a single drop of blood. We used to be a country that pitched in, that helped the little guy, that rallied round to save a neighbor in distress. What you apparently think is appropriately operable here is the survival of the fittest, ignoring that there are human beings, families with children, and communities at considerable risk. A human community is not an ant hill. Chrysler is not a gambling chip. You invest in a company, you invest in the people -- and you behave toward them as you would have them behave toward you.

SeniorSecured: I am familiar with the Trust, with the PBGC and, unlike you, with the rules of grammar and logic. I did not say that I had not put any money into savings, into other investments, or any of the various other mischaracterizations that you endeavor to attribute to me.

My point is, and was, that the holders of secured debt are entitled to recover funds in accordance with the bankruptcy code provisions and should not be considered traitors or pilloried.

I'm actually focused on the human beings, families with children, and communities at considerable risk to losing their investment in fund that hold SENIOR SECURED DEBT of Chrysler.

These people trust the government to protect their interests. Unfortunately, in this situation the administration is looking out for the interest of the Labor Union... the biggest contributor to DNC PACs.

Chrysler will stay in business even after bankruptcy but it shouldn't be left fully in the hands of the Unions.

The attitude displayed in the writings on this board of those who support the hedge funds just mirrors the attitude of the hedge funds themselves. And it is an attitude that does not play well with the public. Perception is everything. If people perceive you as a snot because of your snotty attitude, then you are a snot, regardless of the valid arguments on your side of the fence.

Obama and the government need to be stopped from interferring with private business. They are incompetent and costing the taxpayers billions of dollars trying to protect the unions.

Obama has no authority to do this. (Unless there is some provision in the bail-out bill that no one read.) If that is the case anyone that signed that bill needs to be recalled.

"Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), also commonly referred to as The Steel Seizure Case, was a United States Supreme Court decision that limited the power of the President of the United States to seize private property in the absence of either specifically enumerated authority under Article Two of the United States Constitution or statutory authority conferred on him by Congress. It was a "stinging rebuff" to President Harry Truman.[1]

Justice Hugo Black's majority decision was, however, qualified by the separate concurring opinions of five other members of the Court, making it difficult to determine the details and limits of the President's power to seize private property in emergencies. Note that while a concurrence, Justice Jackson's opinion is used by most legal scholars and Members of Congress to assess Executive power."
http://en.wikipedia.org/wiki/Youngstown_Sheet_&_Tube_Co._v._Sawyer